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British Virgin Island VASPs: Offshore Paradise with Digital Asset VASP license and Global Banking

The British Virgin Islands (BVI) has entered a new era of financial regulation with the introduction of the BVI Virtual Asset Service Providers (VASP) Act. This landmark legislation signals a pivotal shift in the way entities providing virtual asset services operate within the BVI. In this introductory blog, we'll explore the key provisions and implications of the VASP Act, shedding light on what businesses need to know to thrive in this evolving regulatory landscape.

The BVI's commitment to enhancing its regulatory framework for virtual assets has culminated in the VASP Act. Under this Act, any entity looking to offer virtual asset services within or from the BVI is now mandated to register with the BVI Financial Services Commission (FSC). While new entrants must register before commencing VASP activities, existing VASPs were granted a transition period until July 31, 2023. Beyond this date, VASPs that haven't submitted registration applications will face the full enforcement measures of the FSC.

Virtual Asset Service Providers (VASPs) Under the VASP Act

The VASP Act leaves no room for ambiguity when it comes to defining what constitutes a VASP. According to the Act, a VASP is an entity that provides virtual asset services as a business and is registered to conduct a range of activities and operations on behalf of another person. These activities include:

  • Exchange between Virtual Assets and Fiat Currencies

  • Exchange Between Different Forms of Virtual Assets

  • Transfer of Virtual Assets from one virtual asset address or account to another

  • Safekeeping and Administration of virtual assets and instruments that enable control over these assets

  • participation in, and provision of financial services related to the issuance, offer, or sale of virtual assets

  • perform such other activity or operation as may be specified in the VASP Act or as may be prescribed by regulations.

The Act also defines what constitutes carrying on a virtual asset service. Individuals or entities engaging in the following activities or operations for or on behalf of another person will be considered as conducting a virtual asset service:

  • Hosting wallets, maintaining custody, or controlling another person's virtual assets, wallets, or private keys

  • Providing financial services pertaining to the issuance, offer, or sale of virtual assets

  • Offering kiosks, such as bitcoin teller machines, for the purpose of enabling virtual asset activities through electronic terminals, including the exchange of virtual assets for fiat currency or other virtual assets.

  • Engaging in a wide range of activities, as defined by regulatory guidelines, encompassing the provision of virtual asset services, issuance of virtual assets, and active participation in virtual asset-related endeavors.

Exceptions to what constitutes VASP

The VASP Act goes beyond defining VASPs; it also provides exemptions for certain activities, ensuring a balanced and comprehensive regulatory framework. Businesses engaged in the following activities are exempted from VASP regulation, provided their scope remains limited to these specific endeavors:

  • Companies that focus on the provision of information technology infrastructure, such as cloud storage services.

  • Businesses offering software development services, including the creation and sale of software applications or virtual asset platforms.

  • Entities providing unhosted wallets, with their function limited to software or hardware development or sales.

  • Companies offering ancillary services or products to a virtual asset network.

  • Entities solely engaged in operating a virtual asset network, without actively facilitating VASP activities on behalf of customers.

Key Documentation and Appointments for Registering as a VASP in the BVI

Registering as a Virtual Asset Service Provider (VASP) in the British Virgin Islands (BVI) involves a meticulous process that requires specific documentation and appointments to ensure regulatory compliance. In this blog, we delve into the essential details and documentation that must accompany a VASP application for registration.

To initiate the registration process, a VASP must submit a comprehensive application package in the approved format specified by the BVI Financial Services Commission (FSC). This package should include the following information and documentation:

  • Details of Key Personnel: The application should provide information about proposed directors, senior officers, shareholders, beneficial owners, auditors, and an authorized representative of the VASP. Additionally, it must outline the ownership structure, supported by a register of members and an ownership structure chart illustrating the breakdown of percentages held within the legal structure.

  • Business Plan: A detailed business plan pertaining to the VASP is mandatory. This plan should encompass:

- Information about the knowledge, expertise, and experience of the applicant.

- Insights into the nature, size, scope, and complexity of the VASP.

- Strategies for marketing the VASP and the expected sources of business.

- Anticipated human resource capacity.

- Plans for outsourcing arrangements.

- Projections of financial and capital requirements for the initial three years of operation. Applicants must demonstrate an adequate level of paid-up capitalization and sufficient liquidity reserves appropriate for their operational nature.

  • A written risk assessment of the VASP is vital.

  • A comprehensive business continuity plan

  • A written manual must illustrate how the applicant intends to comply with the requirements outlined in the VASP Act

  • Details of internal safeguards and data protection, including cybersecurity systems intended to be utilized.

  • Information about the system to be implemented for handling client assets, custodian relationships, and complaint resolution.

  • Declarations affirming the accuracy and truthfulness of the information provided to the FSC.

Additional Requirements for VASP Services:

Entities wishing to offer Virtual Assets Custody Services or operate a Virtual Assets Exchange must furnish supplementary information and confirmations. These requirements focus on demonstrating the VASP's ability to safeguard client assets and mitigate the risks associated with money laundering and terrorist financing.

Mandatory Functionaries:

With certain exceptions, a VASP must have specific functionaries appointed at all times. These include directors and senior officers, an authorized representative, an auditor, a compliance officer, and a BVI legal practitioner. These appointments ensure regulatory compliance and the proper functioning of the VASP.

Ongoing Obligations for Registered VASPs

  • Registered VASPs are required to maintain records that serve various purposes, including:

    • Providing a clear and transparent account of all transactions.

    • Enabling an accurate determination of the VASP's financial position.

    • Facilitating the preparation of necessary financial returns and statements.

    • Allowing for financial statements to be audited as required.

    • Documenting any client complaints.

    • Demonstrating the measures taken to prevent money laundering, terrorist financing, and proliferation financing.

  • VASPs must submit a copy of their auditor's report to the BVI Financial Services Commission (FSC) within six months of the end of the financial year.

  • VASPs must ensure that client assets are not only identified but also appropriately segregated and accounted for.

  • Registered VASPs are required to cooperate fully with the FSC to ensure compliance with the VASP Act. This includes providing any necessary documents or information requested by the FSC to carry out its regulatory functions effectively.

  • Any proposed changes within the VASP entity require prior written approval from the FSC. These changes may include alterations to the VASP's name, disposal of a significant interest in the VASP, or modifications to its functionaries.

What are the regulatory fees associated with a VASP application?

The government fees payable to the FSC in respect of a VASP application for registration under the VASP Act are as follows:

Consequences of Unlicensed VASP Activities: What You Need to Know

Failure to obtain a VASP license can lead to serious consequences for entities operating in this sector.

The Legal Ramifications:

  • Financial Penalties: Entities found to be conducting virtual asset services without proper registration under the VASP Act may face significant financial penalties. The BVI authorities have the authority to impose fines of up to US$100,000.

  • Imprisonment of Key Personnel: In addition to monetary penalties, the law in the BVI holds individuals in leadership positions accountable. Directors, partners, or senior officers who knowingly authorize, permit, or acquiesce in unlicensed VASP activities may face imprisonment for up to 5 years.

Disclaimer: The information provided in this blog is for informational purposes only. It should not be considered as financial or legal advice.

The cryptocurrency and blockchain space is constantly evolving, and regulations in this field may change rapidly. While Offshore Lawyer make every effort to ensure the information on this website is current and accurate, please note that the content is intended for general reference purposes only. It is not a substitute for professional legal advice tailored to your specific situation. We recommend consulting with our legal team for advice regarding your individual circumstances.

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